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Derivatives, worldwide are recognized as Risk Management products. The term derivatives indicates that the product/ contract derives its value from some underlying i.e. it does not have any independent value. This underlying can be securities, commodities, bullion, currency, livestock or anything else. In other words, derivatives means forward, futures, option or any other hybrid product/contract of predetermined fixed duration, linked for the purpose of contract fulfillment to the value of a specified asset or an index.

Derivatives reduce market risk and increase the willingness to trade in stock market. Trading in derivatives involves lower cost of trading and it also leads to increased volume in the stock market. Investors would be always looking for some hedging tool to protect themselves from the high volatility. This is possible with the use of Options and Futures Contracts traded in the Derivatives Market.

Future contracts are the organized/standardised contracts in terms of quantity, quality, delivery time and place from settlement on any date in future. These contracts are traded on the exchanges. In futures market, clearing corporation /house becomes the counter-party to all the trades or provides the unconditional guarantee for their settlement i. e. assumes the financial integrity of the entire system.

Option is the right given by the option seller to the option buyer to buy or sell a specific asset at a specific price on or before a specific date.

Index derivatives are derivative products for which underlying in the cash market is index. Index derivatives are used to hedge against the market risk.

Hedging is the process of reducing exposure to risk. Hedging comprises any act that reduces the price risk of a certain position in the cash market. Futures contracts continue to be an important means of hedging as they enable the market participants to alter the risks they face from unexpected adverse price changes.

Pace Stock Broking Services Pvt. Ltd. encourages you to hedge your risks in the capital markets by resorting to smart derivative strategies and provides you the means to execute them.

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